Restaurant Accounting: The Ultimate Guide (Updated List)

Accounting for restaurants is an integral part of the business. Many factors affect your restaurant’s performance, but none more heavily than restaurant accounting.

You may be working hard to provide an exceptional dining experience to your customers. However, juggling your restaurant’s accounting and bookkeeping may be difficult while managing the daily operations.

And don’t even get us started about managing the ever-rising operational costs that eat up your hard-earned profit margins.

This guide turns up the heat on your restaurant’s finances! Learn the basics of restaurant accounting that will help you understand your accountant and manage your finances in a better way.

What is Restaurant Accounting?

Restaurant accounting involves managing a restaurant’s financial aspects. It includes recording and interpreting the restaurant’s financial transactions related to operations, expenses, and sales.

If you properly maintain your restaurant’s accounts, you can make informed decisions, avoid complaints, and control costs (thus maximizing profits).

How is Accounting for Restaurants Different?

Unique Operational Challenges & Expenses

Unlike other food and beverage businesses, restaurants are in a unique position. They do not just sell food products but also provide a complete dining experience. This means that there are a ton more factors to consider. Paying for the venue and waiters and chefs, for example. Then, you have the cost of seating, lighting, and decoration. There are just too many additional moving parts that the rest of the food industry does not have to deal with. This is why accounting for restaurants is a unique niche with special needs.

Multiple Revenue Streams

Often, hotel owners have multiple revenue streams, such as on-site hotels, room service, rentals, etc. This makes the hotel’s accounting more complex than a business with a limited product line.

Seasonality

Many hotels face seasonality. Their capacity can be full during the on-seasons, while it can be almost empty during the off-seasons. Seasonality can majorly impact the cash flow and revenue, requiring hotels to manage liquidity effectively to cover expenses during low-revenue periods.

What are the Key Components of Accounting for Restaurants?

The following are the key components of restaurant accounting:

Restaurant Accounting Method

Cash accounting is the go-to method for most restaurants that generate less than $2 million in revenue. It’s straightforward—you record income when we actually get paid for meals and expenses when you get cash.

For hotels and restaurants with revenue over $2 million, it is better to switch to accrual accounting. Accrual accounting logs transactions when they occur, not just when cash changes hands. It gives you a clearer picture of your finances, showing how income and expenses match up. You can analyze your restaurant’s financial health more thoroughly and understand your cash flow dynamics better.

Bookkeeping

Bookkeeping forms the foundation of restaurant accounting. All the financial transactions in a restaurant, such as sales, purchases, expenses, and payments, will be recorded appropriately and accurately.

Bookkeeping is different from accounting. Bookkeeping involves tracking sales, purchases, payments, and receipts and ensuring accurate financial records. On the other hand, accounting encompasses bookkeeping and analyzing data to identify trends, helping business owners make informed financial decisions.

Hence, accountants utilize bookkeepers’ information to create reports and budgets for cash flow management.

Revenue Tracking

Tracking sales revenue is important for restaurants because it helps us monitor their financial performance. It involves recording all income sources, such as food and beverage sales, catering services, and merchandise sales.

The profit margins from different revenue streams may vary, so tracking them individually will help you identify more profitable areas. You can also identify what costs are incurred more/less in which area.

Cost of Goods Sold (COGS) Calculation:

COGS are the direct costs associated with producing the food and beverages served. They include the cost of raw ingredients, beverages, and any other directly attributable costs.

Calculating COGS accurately is essential for determining the restaurant’s gross profit and identifying areas where cost-saving measures can be implemented.

Inventory Management

Effective inventory management ensures the restaurant has sufficient supplies to meet demand while minimizing waste and spoilage. Proper inventory level tracking helps control costs and prevent over-ordering or under-ordering ingredients.

Ratliff, Andrea lists strategies restaurant business owners use to decrease food waste to maintain or increase profit in  Walden University ProQuest Dissertations Publishing, 2023.

Tips for Basic Hotel and Restaurant Accounting

Gain confidence in your numbers from the following tips for basic hotel and restaurant accounting:

1. Stay Updated on Financial Regulations Specific to the Hospitality Industry

While it is not necessary to be an expert in finance and accounting to own a hotel or restaurant, staying updated on financial regulations specific to the hospitality industry can save you money on penalties and fines and assure you of sound financial practices and transparency, which are vital for maintaining the financial health of the business.

2. Choose an Accounting System

Hotels and restaurants have a lot on their plate when managing their accounting. Choosing an appropriate accounting system is important from bookkeeping to payroll management, preparing invoices, and budgeting.

Accounting software makes the accounting process for hotels easier. For example, By using Xero and QuickBooks, you can keep track of sales and expenses and do financial reporting easily.

3. Master Accounts Payable and Payroll

Spoilage in the restaurant industry is inevitable. As an owner, you can put in measures to curb spoilage. Try is the key word here because spoilage is not completely stoppable. And it isn’t enough to just throw spoiled food in the bin. Spoilt food has to be accounted for in your books using the appropriate accounting treatment.

Keep in mind that food spoilage costs are different from food waste. Spoilage happens when your restaurant’s food items (kept for customers’ dining) become unsuitable for consumption. There can be several reasons for this, such as mishandling, expiration, etc.

Food wastage, however, happens when food is discarded during food preparation. So, for example, a chef is making a vegetable salad so the discarded trimmings will be considered food waste.

Properly tracking spoilage separately allows you to identify and address the root causes.

Food spoilage costs are calculated as the difference between the expected and actual closing inventory. To account for these costs in the books, they are debited as a Food Spoilage Expense and credited from the appropriate inventory account.

Payroll and Labor Costs

Another significant expense for restaurants is labor costs. Accurately accounting for wages, salaries, taxes, superannuation, and benefits helps evaluate staff performance and overall operational efficiency.

Overhead and Operating Expenses

Beyond COGS and labor costs, restaurants have other operating expenses like rent, utilities, insurance, marketing, and maintenance. Tracking these expenses enables owners to understand the business’s overall financial health and identify areas where expenses can be reduced.

Cash Flow Management:

Maintaining a positive cash flow is essential for any business, and restaurants are no exception. Efficient accounting for restaurants helps track cash inflows and outflows, ensuring enough working capital to meet day-to-day expenses and investments.

One aspect of cash flow management is ensuring that your restaurant generates enough profit margins and looking for factors that may decrease the profit.

Learn effective cost-control strategies for restaurants in this guide provided by the Restaurant Owner community.

Generating regular financial reports, such as income statements, balance sheets, and cash flow statements, allows restaurant owners and managers to evaluate the business’s performance, identify trends, and make data-driven decisions.

Check out the latest guide to learn how to master the basics of finance management.

Tax Compliance

Like any business, restaurants must comply with tax regulations. Proper accounting for restaurants ensures that taxes are calculated correctly and paid on time, preventing potential penalties and legal issues.

Budgeting and Forecasting

Creating budgets and forecasts based on historical data and market trends helps restaurant owners set financial goals and plan for future growth.

What is the Best Accounting Software for Restaurants?

Restaurant accounting software and cloud-based tools have become popular to streamline these processes and provide real-time data access.

QuickBooks financial software emerges as a crucial ally among the various tools available. With its versatile features, QuickBooks is a great choice for managing purchasing, bill payments, gift certificate tracking, cash flow, time tracking, and payroll.

How Can Outsourced Restaurant Accounting Services Benefit You?

In the challenging world of restaurants, where low margins and high stress prevail, many owners and operators question whether they can escape the cycle of runaway payroll and rising food and beverage costs. The thought of giving up may seem tempting.

With the right support and expertise, restaurant owners can have a balanced book of accounts and the restaurant of their dreams!

You didn’t enter the hospitality industry to record entries and reconcile accounts, did you?

The key to successful accounting for restaurants is hiring the right professionals and employing the right tools based on your restaurant’s needs.

From Chaos to Control: How EA’s Staff Augmentation Restaurant Accounting Services Can Bring Harmony to Your Finances

Entrusting your accounting needs to seasoned restaurant CPAs allows you to focus on areas of core importance to your business daily.

EA’s reliable restaurant accounting services ensure that your accounting and bookkeeping are well-managed. Thus, you can have peace of mind and focus on your core activities. 

So, what are you waiting for? Set your restaurant’s finances on auto-pilot today. Let EA’s experts streamline your operations while you savor the taste of success.